Question 1
Does amortised cost provide decision-useful information for a financial asset or
financial liability that has basic loan features and is managed on a contractualyield
basis? If not, why?
Yes.
Question 2
Do you believe that the exposure draft proposes sufficient, operational guidance on
the application of whether an instrument has ‘basic loan features’ and ‘is managed on
a contractual yield basis’? If not, why? What additional guidance would you propose
and why?
Yes, we are supportive of introducing these two concepts to make the classification
simpler. However, the management’s intention should also be taken into consideration,
which is especially of significance where the investors intend to hold securities to
maturity and measure them at amortised cost even these instruments do not have
‘basic loan features’ and ‘are not managed on a contractual yield basis’ (e.g. CDO,
tranche subprime MBS), as the price volatility is not relevant to the management of
these securities. In addition, pricing these illiquid complex assets is also rather
difficult.
Question 3
Do you believe that other conditions would be more appropriate to identify which
financial assets or financial liabilities should be measured at amortised cost? If so,
(a) what alternative conditions would you propose? Why are those conditions more
appropriate?
(b) if additional financial assets or financial liabilities would be measured at amortised
cost using those conditions, what are those additional financial assets or financial
liabilities? Why does measurement at amortised cost result in information that is more
decision-useful than measurement at fair value?
(c) if financial assets or financial liabilities that the exposure draft would measure at
amortised cost do not meet your proposed conditions, do you think that those financial
assets or financial liabilities should be measured at fair value? If not, what
measurement attribute is appropriate and why?
Please also refer to reply to question 2.
Question 4
(a) Do you agree that the embedded derivative requirements for a hybrid contract with
a financial host should be eliminated? If not, please describe any alternative proposal
and explain how it simplifies the accounting requirements and how it would improve
the decision-usefulness of information about hybrid contracts.
(b) Do you agree with the proposed application of the proposed classification
approach to contractually subordinated interests (ie tranches)? If not, what approach
would you propose for such contractually subordinated interests? How is that
approach consistent with the proposed classification approach? How would that
approach simplify the accounting requirements and improve the decisionusefulness
of information about contractually subordinated interests?
Yes to (a), but No to (b). We suggest putting management’s intention in the criteria to
identify which financial assets or financial liabilities should be measured at amortised
cost or at fair value.
Question 5
Do you agree that entities should continue to be permitted to designate any financial
asset or financial liability at fair value through profit or loss if such designation
eliminates or significantly reduces an accounting mismatch? If not, why?
Yes.
Question 6
Should the fair value option be allowed under any other circumstances? If so, under
what other circumstances should it be allowed and why?
No.
Question 7
Do you agree that reclassification should be prohibited? If not, in what circumstances
do you believe reclassification is appropriate and why do such reclassifications
provide understandable and useful information to users of financial statements? How
would you account for such reclassifications, and why?
Yes.
Question 8
Do you believe that more decision-useful information about investments in equity
instruments (and derivatives on those equity instruments) results if all such
investments are measured at fair value? If not, why?
No, we do not believe eliminating the cost method improve decision-useful
information about equity investments for users of financial statements.
IAS 39 requires all investments in equity instruments (and derivatives on those equity
instruments) to be measured at fair value, unless they do not have a quoted market
price in an active market and their fair value cannot be reliably measured. Such
instruments are measured at cost. We suggest the entity is allowed to measure these
investment at cost when their fair value cannot be reliably measured, as pricing
unlisted equity investment is rather costly and subjective to much judement of the
management.
IAS 39 requirements are still acceptable to us.
Question 9
Are there circumstances in which the benefits of improved decision-usefulness do not
outweigh the costs of providing this information? What are those circumstances and
why? In such circumstances, what impairment tests would you require and why?
No, the benefits of measuring all investments in equity investments at fair value do
not outweigh the costs of providing this information. This would not improve
comparability as pricing unlisted equity investment is rather subjective to judement of
the management and also very costly.
Question 10
Do you believe that presenting fair value changes (and dividends) for particular
investments in equity instruments in other comprehensive income would improve
financial reporting? If not, why?
No, we do not believe so. It might even make the financial reporting worse, the
reasons are:
According to PRC Company Law, only the undistributed profits and statutory reserves
charged from undistributed profits are eligible for dividend appropriations. This
remains a major concern for us as the ED does not explicate whether these items are
allowed to transfer to undistributed profits.
Currently, “Profit for the period” remains the most important indicator when
stakeholders, regulators, media evaluate performance of the company. It would take
some longer time to educate the related parties to accept the OCI concept. The current
equity investors would be in dilemma when they have to decide how to classify these
investment and when to dispose them, as the investors either have to cope with
volatility in P/L or recycle the gains or losses in OCI forever.
It would also deviate financial accounting further from tax accounting in terms of the
the computation of income tax expense. Disallowing the transfer of these taxable
realized gains or losses from OCI to P/L would add more complexity to the tax
expense computation.
So we suggest the unrealized FV changes would be presented in OCI and realized
gains or losses from the disposal and dividends would be allowed to transfer to P/L
and hence no impairment requrements.
Question 11
Do you agree that an entity should be permitted to present in other comprehensive
income changes in the fair value (and dividends) of any investment in equity
instruments (other than those that are held for trading), only if it elects to do so at
initial recognition? If not,
(a) how do you propose to identify those investments for which presentation in other
comprehensive income is appropriate? Why?
(b) should entities present changes in fair value in other comprehensive income only
in the periods in which the investments in equity instruments meet the proposed
identification principle in (a)? Why?
Yes
Question 12
Do you agree with the additional disclosure requirements proposed for entities that
apply the proposed IFRS before its mandated effective date? If not, what would you
propose instead and why?
No.
Question 13
Do you agree with applying the proposals retrospectively and the related proposed
transition guidance? If not, why? What transition guidance would you propose instead
and why?
Yes.
Question 14
Do you believe that this alternative approach provides more decision-useful
information than measuring those financial assets at amortized cost, specifically:
(a) in the statement of financial position?
(b) in the statement of comprehensive income? If so, why?
No.
Question 15
Do you believe that either of the possible variants of the alternative approach provides
more decision-useful information than the alternative approach and the approach
proposed in the exposure draft? If so, which variant and why?
No.